Lippo Securities enters retail brokering

Lippo Securities enters retail brokering

By Aloysius Bhui

JAKARTA (JP): PT Lippo Securities (Lippo) of the Lippo Group
recently revealed to the media and stock analysts that it has
launched a retail brokering service to anticipate a foreseeable
growth in the number of domestic investors.

As the first and only listed securities company in Indonesia,
Lippo's move raised questions about its business strategy and its
strength in the domestic market, which is fundamental to
investors deciding whether to invest in the company.

Moreover, the Jakarta Stock Exchange (JSX) is widely known as
a market dominated by foreign investors. They contribute about 70
percent of the market's transaction volume.

Lippo's president, Charles De Queljoe, however, told an
analysts' meeting recently that the management's decision is
aimed at anticipating a strong upsurge in the number of domestic
investors.

"Our vision is to become "the Merrill Lynch of Indonesia,"
De Queljoe told the meeting which was attended by 60 stock
analysts from both local and foreign companies.

"You will eventually find Lippo's office in every major city
or even medium cities throughout the country, just as Merrill
Lynch has in the United States.

"We believe that the number of domestic investors will grow
rapidly in the years to come. Within four or five years, domestic
investors, both individuals and institutions, will account for 50
to 60 percent of the JSX's transaction volume," De Queljoe said.

In an interview with The Jakarta Post, De Queljoe disclosed
several key assumptions driving his optimism.

He said that domestic retailing has been very active since the
implementation of the JSX automated trading system in May last
year.

A director of the JSX, Mas Achmad Daniri, also confirmed that
since the stock exchange became automated, trading on the regular
board has accounted for 60 percent of total transactions, as
compared with only 30 percent before.

"We further believe that the planned scripless trading and
remote trading will increase the participation of domestic
investors. For us, scripless trading is very important," De
Queljoe noted.

"I cannot emphasize enough that scripless trading will
encourage securities companies to look for more retail
investors," he added.

Chairman of the Capital Market Supervisory Agency (Bapepam) I
Putu Gede Ary Suta once said that by the year 2000 all the shares
listed on the JSX should be scripless.

There are 47 billion shares listed on the JSX now.

Another important factor, according to De Queljoe, is the
enactment of the new capital market law, which, among other
things, allows the establishment of open-end mutual funds.

"I believe that there will be many domestic funds to be set
up. In addition to the law, tax incentives offered by the
government recently will also encourage domestic funds," he said.

"Right now we deal in the physical environment. If you buy
shares through us, we have to physically handle the share
certificates. If it is a small order, because you are retail, it
becomes expensive for us to handle the transaction.

"And it's changing. I think the government has planned to
start scripless trading in the fourth quarter of this year. So
it's the right time to start."

Strength

During the last five years of its operation, Lippo only served
foreign clients. The company has set up a strong distribution
network through its subsidiaries which operate in Hong Kong,
Taipei, Bangkok and Manila. While in this country, it only
operates in Jakarta.

De Queljoe, however, said that Lippo will make use of Lippo
Bank's and Lippo Life's nationwide networks to strengthen its
domestic retail base.

An analyst also said that as a bank-affiliated securities
company, Lippo has already got strong support to penetrate the
domestic retail market.

De Queljoe said that domestic retail is already a big part of
Lippo's business. For the first four months of this year,
domestic retails have accounted for 30 percent of Lippo's
transaction volume every day.

Lippo Bank now has 108 offices Jakarta, 14 in the greater
Jakarta area, 34 in West Java, 75 in Central Java, 28 in East
Java, five in Bali, 30 in Sumatra, six in Kalimantan, two in
Sulawesi and one in Ambon.

And Lippo Life has three financial centers, 134 branches and
counters and 5,200 agents.

De Queljoe also said that the management has budgeted Rp 4
billion this year to improve its infrastructure and computer
system.

The new network, yet to be fully developed, is an integrated
one which has both back-end and front-end systems.

"The new computer system will allow us to make on-line real
time transactions from other cities," De Queljoe said.

He said that the system, which is expected to be effective in
October, is also designed to be easily interfaced with the Lippo
Bank and Lippo Life computer systems.

In a addition to a wide distribution network the company has a
large capital and strong research team.

On account of its sound research, Lippo has been declared the
best securities company in Indonesia by Euromoney in 1993, 1994
and 1995.

It was also labeled the best underwriter by a local economic
magazine last year.

With a total equity of Rp 170 billion (US$72.3 million), Lippo
is believed to be the largest capitalized securities company in
Indonesia today.

Performance

Lippo, which was established in 1989 by the Lippo Group and
then became a joint venture company in 1990 when the Swiss Bank
Corporation (SBC) joined the company, is licensed to provide
corporate finance, brokerage and financial advisory services.

In the past four years, Lippo executed 29 transactions as lead
manager and co-manager, raising debt and equity capital of Rp 3.6
billion for Indonesian companies both in the primary and
secondary markets.

It has also underwritten eight debt and 25 equity capital
market transactions.

On stock transactions, Lippo was placed among the top
brokerage firms on the JSX in both of the last two years.

For the first three months its total stock transactions value
on the JSX reached Rp 1.2 trillion or 65 percent of its 1995
total volumes.

"This year, we have been mandated to execute at least four
IPOs and two rights issues together with three advisory
assignments," De Queljoe said.

Lippo's total revenues rose from Rp 17 billion in 1993 to Rp
44 billion in 1994 but then declined to Rp 24 billion last year
due mainly to the sharp drop of corporate finance revenues from
Rp 22 billion in 1994 to only Rp 1 billion last year.

It's net profits were Rp 7 billion in 1993, Rp 26 billion in
1994 and Rp 14 billion last year.

Its earnings per share also declined by 47 percent from Rp 204
in 1994 to Rp 108 last year.

De Queljoe said that the decline in Lippo's earnings last year
was due mainly to the overall weakness of the JSX, in line with
regional trends.

Other listed brokers in the region also suffered from earnings
drops. Vicker Ballas' earning per share dropped by 45 percent, GK
Goh by 58 percent, Kim Eng by 42 percent and Kay Hian James
Capel by 40 percent.

In early January, Lippo's share price hit its lowest ever
level, Rp 650, as investors became jittery over a reported split
between Lippo and SBC in addition to the bad earnings report.

But the speculation ended in mid-January when the Lippo Group
bought all of the 17.2 percent stake owned by SBC. The buy-back
transaction also turned it into a national securities company.

The share price then went up by 85 percent from Rp 850 at
January's close to Rp 1,575 at the end of February. It further
rose, to Rp 2,650, by the end of March.

Lippo Securities market share has risen from 3 percent for the
whole of last year to 6.4 percent for the first quarter of this
year.

Future Outlook

The future of the listed securities company is strongly
dependent on the growth of the capital market.

Some analysts believe that the JSX has the highest potential
growth among the major Asian stock exchanges.

The JSX's market capitalization has dramatically increased
from only Rp 0.48 trillion at the end of 1988 to Rp 187 trillion
as of the end of April 1996.

JSX's market capitalization is expected to reach US$244
billion in the year 2000 with an average growth of 35 percent per
annum.

"In line with the market growth we expect an earnings per
share growth of 78 percent in 1996," De Queljoe said.

He said that for this year the management has expected to book
Rp 32 billion in pretax profits or an increase of 86 percent over
1995's result.

The company has proposed issuing three new shares for every
two old shares, to be priced at Rp 1,000, in July to raise funds
of about Rp 195 billion.

A foreign-based securities company recently said in its
unpublished analysis report that listed securities companies in
South East Asia are excellent for long term investment.

The report cited that as of the end of 1995, Peregrine
Investment of Hong Kong, for example, had increased 602 percent
since its listing in 1987. Rashid Hussain of Malaysia also rose
884 percent since 1988, Finance One of Thailand by 3,620 percent
since 1988 and GK Goh by 124 percent since 1990.